The outdated way we measure poverty hurts those in need

Lawmakers evaluating today’s slate of health-care proposals underestimate their impact because of a deeply flawed and obsolete way of measuring poverty.

This fall the U.S. Census Bureau brought good news when it informed us that the nation’s poverty rate had fallen from 13.2 to 12.7 percent.

But now more than ever, we should be suspicious of this news.

The reason is that the messenger — the official poverty rate — is deeply flawed. A close look into it reveals that it is unmoored from its purpose of measuring the share of Americans struggling to make ends meet. And it’s drifting farther from that principle. As underscored by recent events in the other Washington, it is time to reattach our poverty indicator to the reality of people’s lives today.

Katie Baird is professor of economics at the University of Washington Tacoma who researches health-financing policy.

To calculate a poverty rate requires first setting the threshold income below which someone is poor. The U.S.’s threshold, three times the cost of a minimum food diet, is more than 60-years-old and was set when food was families’ most costly expense. No wonder a family of four today with $25,000 in income is not officially poor: Our threshold doesn’t match the reality facing low-income households.

Next comes the challenge of defining income. As conservatives point out, we underestimate income by omitting the value of many cash and noncash government benefits. This practice dates to a time long past when government expenditures on tax credits, food stamps and housing subsidies weren’t that significant.

Liberals, on the other hand, point out that poverty income does not deduct families’ non-discretionary expenses such as taxes, child care and health care. Such omissions are particularly outdated when it comes to health care: In 1960, when the current poverty formula was adopted, a typical worker spent a week’s wages on health expenses. Today it takes two months.

Such inadequacies have been at the heart of longstanding debate over our poverty measure and explain why in 2010 the Census Bureau adopted an additional poverty indicator called the Supplementary Poverty Measure (SPM). The SPM addresses the above shortcomings (and others) by adjusting both the poverty threshold and the definition of income.

The Census Bureau now publishes the SPM alongside the official poverty rate. Currently…